Oracle Joins the Hardware Big Leagues with Sun Buyout

NEWS ANALYSIS: The $7.4 billion buyout of Sun Microsystems is giving Oracle an opportunity to build an integrated hardware and software company that can compete with the likes of IBM and Hewlett-Packard as a full-service IT systems provider. But Oracle has to demonstrate that it is prepared to invest in the Sun brand for the long term, and not just wring as much profit as possible from a once great company that has long been in decline.

The Sun buyout isn't even Oracle's biggest deal. That distinction goes to Oracle's acquisition of enterprise resource planning software provider PeopleSoft for $10.3 billion in December 2004. It's also eclipsed by middleware and application development tool company BEA Systems for $8.5 billion.

So far Oracle hasn't stumbled with any of these acquisitions. Despite the massive cost of all these acquisitions, Oracle has reported quarter after quarter of hefty revenue growth at least until the company started to feel the full effects of the recession that started to erode sales and profits across the tech sector late in 2008.

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But the Sun buyout put Oracle into a whole new league. Going into the hardware business gives it a chance to go to customers with the pitch that it can supply virtually all their IT needs from soup to nuts-servers, storage, database software and a multitude of applications. If there is any weakness in this lineup, it is the lack of a vigorous services business, since Oracle has historically relied mainly on channel partners for product services. But Oracle can always build or buy an IT services group.

I have to disagree with my esteemed colleague Joe Wilcox, who contends that Oracle will effectively kill off Sun. Yes, it's the end of Sun as an independent company. But that's not Oracle's doing. Sun's management can only blame itself for all the missteps that caused it to go from a cash-rich industry powerhouse to a weak market has-been that had to go hat in hand to prospective buyers before it ran out of cash and time.

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